Schmitz v. Crotty, 93-1650

• Court: Iowa Supreme Court
• Writing for the Court: Considered by McGIVERIN; McGIVERIN
• Citation: Schmitz v. Crotty, 528 N.W.2d 112 (Iowa 1995)
• Decision Date: 22 February 1995
• Docket Number: No. 93-1650,93-1650
• Parties: Clyde SCHMITZ and Connie Karhoff, Appellants, v. J. Desmond CROTTY, Appellee.

Page 112

528 N.W.2d 112

Clyde SCHMITZ and Connie Karhoff, Appellants, v. J. Desmond CROTTY, Appellee.

No. 93-1650.

Supreme Court of Iowa.

Feb. 22, 1995.

As Amended Feb. 28, 1995.

James R. Van Dyke of Van Dyke & Werden, P.C., Carroll, for appellants.

Donald A. Beneke, Pocahontas, for appellee.

Considered by McGIVERIN, C.J., and NEUMAN, SNELL, ANDREASEN and TERNUS, JJ.

McGIVERIN, Chief Justice.

This case raises the issue of whether the defendant attorney breached the duty of care he owed to the plaintiff beneficiaries in his handling of their mother's estate as a matter of law. Because the defendant accepted responsibility for the death tax returns he filed on behalf of the plaintiffs' mother's estate and the plaintiffs showed defendant's undisputed mishandling of those returns, we conclude that this is a rare case which requires us to hold in this bench-tried law action that defendant breached his duty to exercise reasonable care as a matter of law. We reverse the judgment of the district court which found no breach of duty and remand for consideration and award of damages to the plaintiffs.

I. Background facts and proceedings. Julia Schmitz, the mother of plaintiffs Clyde Schmitz and Connie Karhoff, died on February 10, 1985. In her last will and testament, Julia named her two children, Clyde and Connie, as her sole beneficiaries and co-executors. Julia's will was admitted to probate in the Iowa district court for Pocahontas County, and Clyde and Connie were appointed co-executors. They designated Rodney Hudson, an attorney practicing in Pocahontas, Iowa, as attorney for Julia's estate.

At the time of his designation, Hudson was ninety years old. He was a locally respected lawyer, particularly in probate and property law, having practiced law in Pocahontas since 1916. Hudson prepared and filed with the court the probate report and inventory for Julia's estate. The estate was substantial, including tracts of farmland in Pocahontas and Carroll Counties in Iowa and some farmland in Canada.

Later in 1985, Hudson's physical health deteriorated to the point where it prevented him from completing his work. Recognizing this, he asked the defendant, attorney J. Desmond Crotty, to take over the handling of some of his business affairs, including Julia's estate. Like Hudson, Crotty had practiced law in Pocahontas for several years, beginning in 1965. Over the years the two attorneys had collaborated on a variety of matters and had thereby developed a professional relationship, so Crotty accepted Hudson's invitation and took over the handling of Julia's estate in the summer of 1985.

In taking over and finalizing the probate proceedings for Julia's estate, Crotty did not discuss with either Hudson or the plaintiffs the descriptions of the land listed in the probate inventory which Hudson had filed with the court.

Similarly, when Crotty completed, signed, and filed the federal estate tax return and the state inheritance tax return for Julia's estate in November 1985, he relied on and used the descriptions of the real estate as Hudson had set them forth in the probate inventory. Unknown to Crotty at that time, however, the probate inventory descriptions were incorrect, describing more Carroll County land than Julia had actually owned at her death.

The three relevant legal descriptions of the Carroll County property which Hudson had listed in the probate inventory were as follows:

[Parcel 2] An undivided half interest in the West Half (W 1/2) of the Southeast Quarter (SE 1/4) of Section 36, Township 83, North Range 36, West of the Fifth Principal Meridian, Carroll County, Iowa, subject to a life estate re the whole of said tract of real estate (an undivided 40 acres with no income).

[Parcel 3] The North one-third of the South Half (S 1/2) of the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of Section 36, Township 83, North Range 36, West of the Fifth Principal Meridian, Carroll County, Iowa (13 1/3 acres).

[Parcel 6] An undivided one-half interest in the Southeast Quarter (SE 1/4) of Section Thirty-six (36), Township Eighty-three (83), North Range Thirty-six (36), West of the Fifth Principal Meridian in Carroll County, Iowa, subject to a life estate re the whole of said tract of real estate (an undivided 80 acres with no income).

All of these parcels describe land in section 36 of Carroll County, but parcels 2 and 3 are duplicative of parcel 6 in that parcels 2 and 3 are contained within parcel 6. Also, parcel 3 consists of only six and two-thirds acres rather than thirteen and one-third acres as stated in the description.

As a result of the inclusion of these three descriptions on the federal estate tax return and the Iowa inheritance tax return, the returns included erroneous property descriptions and higher tax computations for the Carroll County land in section 36 than Julia's estate should have paid. In short, Crotty based the federal estate tax and the Iowa inheritance tax upon the value of 133 1/3 acres of Carroll County land in section 36 as supposedly owned by Julia at the time of her death rather than on the value of 46 2/3 acres which she actually owned.

Moreover, in computing the death taxes for Julia's estate, Crotty used a full per acre value for all of the Carroll County land in section 36 included in Julia's estate as though she had owned all of the land in fee simple. Yet Julia had only owned six and two-thirds acres in fee simple; her ownership in the other forty acres had been subject to a life estate, making her ownership in those forty acres consist of only a remainder interest. Accordingly, the death tax calculations for those acres should have contained a life estate reduction factor to reflect the actual value of Julia's remainder interest and thereby to appropriately reduce the death taxes on her estate.

After Hudson died in 1986, Crotty became the sole attorney for Julia's estate. Acting as such, on May 7, 1987 he filed the final report for Julia's estate with the court. The final report, like the probate inventory filed by Hudson and the death tax returns filed by Crotty, contained incorrect legal descriptions of the Carroll County property in section 36.

The court order approving the final report, discharging the co-executors, and closing the estate was entered on May 11, 1987. Crotty's fees were fixed according to the value of the estate assets, including the erroneously described Carroll County real estate.

Pursuant to the order closing the estate, the Pocahontas County district court clerk certified to the Carroll County auditor a change in title of the Carroll County land to Clyde Schmitz and Connie Karhoff.

A few months later, in September 1987, the Carroll County district court clerk informed Crotty that the legal descriptions of the Carroll County land recently titled to the plaintiffs were incorrect. Thereafter, Crotty prepared and caused the Pocahontas County district court to enter a nunc pro tunc order setting forth different legal descriptions of the Carroll County property in section 36 and in two other sections. Regarding the property in section 36, Crotty deleted the descriptions entitled parcels 2 and 3, and retained the description entitled parcel 6 as the official description of that portion of the Carroll County real estate.

This attempted correction did not rectify but furthered the inaccuracy of the legal descriptions of the Carroll County property in section 36. The evidence showed that the reverse of Crotty's action would have resulted in the correct legal descriptions; Crotty should have deleted the description of parcel 6 and retained the descriptions of parcels 2 and 3. Furthermore, parcel 3 should have been described as consisting of six and two-thirds acres rather than thirteen and one-third acres.

After making the "corrections" through the nunc pro tunc order, Crotty did not recognize or attempt to correct the erroneous descriptions of the same Carroll County property in section 36 on the death tax returns he had previously filed with the tax authorities. Crotty admitted his responsibility for these returns, but he failed to realize the reduction of the acreage would lessen the death taxes on Julia's estate.

Subsequently, in 1991, plaintiffs, while doing some income tax calculations concerning the tax bases for their farms, discovered that the descriptions of the Carroll County property contained in the probate inventory and death tax filings for their mother's estate had been incorrect. They discovered that the Carroll County property descriptions for section 36 were duplicative, resulting in the probate inventory and death tax returns showing 86 2/3 more acres of land than their mother had owned in section 36 at the time of her death and, therefore, more estate and inheritance taxes paid than had been required.

Connie contacted Crotty and asked him about filing for tax refunds, but Crotty informed her that the deadline for filing amended tax returns and obtaining refunds had already passed. Crotty also failed to return any of the excess attorney fees that had been based on the higher values and paid to him by Julia's estate.

Thereafter, on August 25, 1992, plaintiffs Connie and Clyde filed a petition against defendant Crotty for legal malpractice, alleging that Crotty breached his duties as their attorney or, in the alternative, that he was negligent while acting as their attorney. Plaintiffs sought damages for overpaid death taxes, inflated attorney fees, and interest.

Following a trial of this law action to the court, the district court dismissed Clyde and Connie's malpractice petition. The court concluded that the plaintiffs failed to prove by a preponderance of the evidence that defendant Crotty had breached his duty of care. The court determined Crotty did not deviate from the ordinary skill and care required of a probate attorney in completing the estate work because he had reasonably relied upon the property...